Fed Meeting: Another 25-bp Rate Hike - Strategies for Savers
Latest Liquid Bank Account Rates
Fed Meeting Preview and Deposit Rate Forecast - March 15, 2023
Silicon Valley Bank Is Shut Down - Second Largest Bank Failure in HistoryQ3 Earnings Report Offers Insights for Ally Bank’s Deposit Customers
Last Friday Ally Financial released its third quarter earnings report, and Q3 profits were strong and far exceeded analysts’ estimates. A few details from Ally’s earnings report may interest Ally Bank deposit customers. First, if you have a lot of your savings at Ally Bank, the Q3 earnings report indicates a financially healthy bank. According to this American Banker article on Ally:
Rebounding demand for cars — sparked by Americans’ reluctance to fly or take public transportation in the midst of the coronavirus pandemic — has driven auto loan originations at Ally Financial to a five-year high.
Auto loans contributed to large gains in both revenue and profit. Compared to Q3 2019, adjusted total net revenue was up 4%, and adjusted earnings per share was up 24%. So far Ally hasn’t seen a large increase in auto loan defaults. However, Ally does acknowledge the significant risk of rising defaults and has taken steps to handle this problem as the American Banker article describes:
Ally is anticipating a steep rise in losses, given the nation’s 7.9% unemployment rate, though not before next year. The company set aside $147 million in provisions for loan losses after stashing a total of nearly $1.2 billion in the first half of the year.
Taking precautions to ensure your deposits are fully covered
As I mentioned in previous posts, it will probably take one or two years before banks begin to be heavily stressed by the pandemic effects. It’s now a good time to ensure that your deposits are fully insured at Ally Bank and at any other of your banks and credit unions. In this April blog post, I reviewed several ways that you can maintain insurance on over $250k at any one bank. One common way is through the use of POD beneficiaries. However, there are risks when you use beneficiaries to extend your FDIC coverage. I reviewed those risks in that post.
Earlier this year Ally Bank emailed customers requesting that they provide social security numbers or tax ID numbers for their beneficiaries. An excerpt of this Ally email is shown below:
The FDIC has made updates, effective April 1, 2020, to its regulatory requirements for paying deposit insurance. To make sure you receive the maximum insurance coverage you’re entitled to, you’ll need to provide a valid Social Security number or Tax Identification number for each of your beneficiaries. Check out FDIC’s Part 370 Rule, recordkeeping requirements in section 370.4, for further details.
I researched this with my Ally Bank contact, and according to my contact, “the FDIC guidance does allow for other unique identifiers and we’re actually working to provide alternatives later in 2020.” I found this beneficiary election form at Ally’s website, and according to this form, additional options instead of a social security number or Tax ID number can be provided. These other options include an alien ID card #, driver’s license #, passport # or military ID.
It’s questionable if the new regulatory requirements could prevent a depositor with beneficiaries without unique number identifications from receiving the full FDIC coverage. Nevertheless, if you want to be safe, it would be a good idea to ensure your beneficiary information at Ally includes the requested identification numbers.
Insights into Ally Bank's deposit rates
In addition to financial health, Ally’s Q3 earnings report offers insights into Ally’s deposit strategies. One part of the report suggests financial conditions at Ally that should encourage higher deposit rates (or at least deposit rates that don’t fall as much as competitors). Ally was actually able to increase slightly the average yield on retail auto loans from Q2. According to the American Banker article:
Ally has been able to avoid yield compression in part because of its strong position in the used-car market, where interest rates tend to be higher than they are for new vehicles.
The one important financial condition that hasn’t encouraged Ally to keep deposit rates higher than its competitors is a steady and strong increase in retail deposits and customers. Banks don’t have to offer high deposit rates when deposit growth comes easy. From Ally’s Q3 earnings presentation, deposits grew to $134.9 billion, a year-over-year growth of 13%. The number of retail customers grew to 2.2 million, a year-over-year growth of 14%. This was Ally Bank’s highest third quarter growth.
On page 13 of Ally’s Q3 earnings presentation, a few interesting facts about Ally Bank deposits were presented. Average retail portfolio interest rate has fallen from 2.14% in Q3 2019 to 1.26% in Q3 2020. With Ally Bank’s Online Savings Account rate now at 0.60% and its highest CD rate now at 1.00% (5-year term), I’m sure this average rate will continue to fall in future quarters. Customers are holding more of their money in savings and checking accounts compared to CDs. The percentage held in checking and savings accounts increased from 49% in Q1 2020 to 56% in Q3 2020. The percentage held in CDs decreased from 38% to 34% during this same period. I think many customers have chosen not to renew their CDs as they mature. I wouldn’t be surprised if the percentage of funds in CDs continues to fall in the next several quarters.
Comparing Ally Bank rates with its competitors
Ally’s financial conditions may explain why Ally Bank’s deposit rates have remained on the high end as compared to its competitors. Below is a comparison of Ally and several of its main competitors on savings account rates and 5-year CD rates.
Savings Account APYs
5-year CD APYs
Let’s hope Ally and the other online banks don’t follow Capital One and Barclays with disturbingly low CD rates.
Some of the FIs in which I have accounts that exceed $250k never asked for SS#s and I'm not even sure if they are willing to accept them or their system handles them. And from your article Ken, as you noted, it's not clear as to whether the FDIC will count a beneficiary without their SS# (or other acceptable unique ID).
And did NCUA make similar changes? Will accounts that were opened before the regulations went into effect be grandfathered if they don't meet the new ID requirement? What else changed? Does it apply to formal trusts or only informal? I have formal trusts with more than 15 beneficiaries, none of whom I can provide SS#s for and none of whom I want to know that they are a beneficiary. Lovely. I'd have to hire a hacker to get their SS#s. So many questions.
This is truly disturbing. The system has to be changed. A bank needs to certify that you are insured so that there isn't any doubt you are covered. This self serve system is illusory insurance, not exactly the kind that instills confidence.
Ally asked me for some SS#s and EINs, but not for some of the beneficiaries on the formal trust accounts I have there. I don't know if that means they are not required, or that Ally doesn't care since if they go belly up it won't be their loss.
In any event, I have at least a week's worth of research to do and looks like some of my paperwork is going to have to be revised again and I may not even be covered now. Just when I thought I was out THEY PULL ME BACK IN! URRRRRRRRR
I am considering changing all my beneficiaries, on the informal trusts anyway, to non-profits for those FIs that accept them. It is awkward at best to ask even some family members for their SS#s. And the alternate forms of ID mentioned are no less awkward. At least with non-profits you can get their TIN, and in most cases don't have to worry about their passing away. My current beneficiaries just better hope I never die!
What a mess!
This insurance system is making me consider pulling everything out of banks and credit unions. I am losing faith in it.
PS: I understand that over 6 million households failed to pay their mortgage payment or rent in September. So it's pretty hard for me to see how the carnage is going to hold out for one or two more years. The only solution is getting the economy open and back to record growth. And in order to do that we have to do the things that open it and make that record growth possible. There is no other way out.
According to Weiss ratings, Ally Bank itself has a "B" rating--which is pretty good for Weiss which is stringent. However, Ally Financial as an investment is given a "C" rating and listed as a "hold" with respect to investment recommendation. The reasons are noted below. Of course Weiss' perspective is just one of many, but worthy of consideration:
Rating
Reward B Good
Risk D+ Weak
Rating Factors
Growth: Fair
Efficiency: Good
Solvency: Excellent
Total Return: Weak
Volatility: Weak
Dividend: Good
What has been the experience of people with over 250k using different ownership categories when a bank fails and the FDIC has to do a payout.